Premium malls still offer added value in UAE’s mature retail market

'The UAE is now a fully mature market and the margins that were once available are now no longer in play,' said David Macadam, the chief executive of the Middle East Council of Shopping Centres.

The Lulu Hypermarket in Al Barsha. The World Retail Congress kicks off in Dubai on Tuesday. Christopher Pike / The National

While the UAE’s retail sector is being buffeted by the headwinds of a tightening economy, its main issue is its maturation – a new normal that retailers have to accept, according to an industry expert.

David Macadam, the chief executive of the Middle East Council of Shopping Centres, was speaking ahead of this week’s World Retail Congress (WRC), which kicks off in Dubai on Tuesday and where the future of the sector will be debated by the world’s biggest retailers.

“The UAE is now a fully mature market and the margins that were once available are now no longer in play,” said Mr Macadam. “In the old days there were massive opportunities but now retailers have to work on an expectation of 6 to 8 per cent return and not 35 per cent.”

This year’s forum is titled Reimagining the Customer Experience, which reflects the challenges faced by UAE retailers. These include economic uncertainty, a strong dollar making the UAE an expensive destination for many of its traditional visitors and the rise of e-commerce, which has cut retailers’ margins requiring a recalibration in business models.

“Businesses have to focus on efficiency and possibly new markets,” he said. “The Dubai-based Apparel Group that has brands including Tommy Hilfiger, Juicy Couture and Aeropostale opened 167 outlets in Saudi Arabia last year so it’s not all doom and gloom.”

The Apparel Group declined to comment when asked about its Saudi Arabia expansion.

In February, Hamad Buamim, the president and chief executive of the Dubai Chamber of Commerce and Industry, said retailers did not lose money last year but they did not see any growth either and he did not see 2017 faring any better. Mr Buamim also called on the emirate’s mall operators to lower their rents. However, the UAE’s malls could be shielded from the retail revolution.

“The perception in the market is, yes, there will be a market for the premium malls in Dubai,” said Asma Dakkak, JLL’s research manager.

“They offer more than just a shopping destination. They come with a lot more added entertainment and amenities, which will continue to support footfall. Whether it’s the likes of Ski Dubai or Kidzania, these destinations will continue to play a vital role in the market.”

Ms Dakkak also pointed to online shopping, which “is growing exponentially in our region”.

“I believe this trend will continue moving forward,” she said. “Retailers will have to remain innovative to attract end consumers. The digital age is inevitable but experiences will continue to be tangible.”

With online commerce estimated by industry experts at about 3 per cent of the overall retail spend in the region, against 15 per cent in more mature markets, there is a huge potential for growth.

Amazon’s acquisition of Souq.com last week is a wake-up call to the region’s physical retailers but the boss of the new Amazon entity believes the market can withstand physical and online players.

“We operate in a big market,” said Ronaldo Mouchawar, the chief executive of Souq.com. “Each retailer has a different strategy which is why we see it fragmenting globally. The same will apply here and we expect local and global both physical and online players to grow the market.”

Delegates attending WRC, which runs until Thursday at Dubai’s Madinat Jumeirah, include Guru Gowrappan, the global managing director of the world’s largest retailer; China’s e-commerce leviathan, Alibaba; Yonov Frederick Agah, the deputy director-general of the World Trade Organisation; and Alain Bejjani, the chief executive of Majid Al Futtaim.

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